Bank of England warns families to expect fall in living standards

In a blunt warning issued in a key report, the Bank also said that it is too early to conclude that unemployment has peaked. 

It said that although thus far many workers had been willing to accept pay reductions, or reluctantly to work part-time, employees may have failed to realise that the costs of goods and services are likely to rise faster than their wages in coming months. 

The Bank report said that one risk was that employees would be “unwilling to accept a further squeeze in real wage growth”, adding: “That could lead them to push for higher pay settlements this year. But if companies cannot afford the increase, then they may shed labour in order to contain labour costs.” 

It said: “There remains a risk of further falls in employment if, for example, the recovery in demand proves more sluggish than businesses have expected. Businesses may respond to any future squeeze in profits by shedding staff.” 

The warning comes amid worries that Britain could fall victim to a double-dip recession, slumping backwards no sooner than the economy had escaped it. 

Such worries were reinforced further on Monday as a Bank policymaker and Monetary Policy Committee member Kate Barker conceded that the economy could shrink for a period this year.

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